Gold futures score modest gain, post weekly loss

Demand trends play out as fiscal-cliff worries keep investors on edge

SarahTurner

SAN FRANCISCO (MarketWatch) — Gold futures settled with a modest gain Friday but posted a weekly loss, with worries about demand trends playing out in metals markets as investors wait to see what steps the U.S. government takes to avert the so-called fiscal cliff.

Gold for December delivery
US:GCZ2
added 90 cents, or less than 0.1%, to settle at $1,714.70 an ounce on the Comex division of the New York Mercantile Exchange, trading between $1,705.60 and $1,717.20. Prices ended 0.9% lower than last Friday’s settlement.

Asia driving gold demand

(2:45)

The demand for gold reflects a challenging global economic climate, with India’s market up but Chinese demand down.

“I’d say the biggest influence on the gold price right now is the ongoing uncertainty over the so-called fiscal cliff,” said Ben Traynor, chief economist at BullionVault.

Congressional leaders met Friday with President Barack Obama and administration officials in an effort to build plans to avert the fiscal cliff, which is threatening to push the world’s largest economy into recession next year. As the session wrapped up, congressional leaders called the talks “constructive.” See: Obama, leaders huddle in fiscal-cliff talks.

The first round of fiscal-cliff negotiations had what one participant called a “constructive” tone Friday.

“Unlike summer 2011, when the debt ceiling shenanigans propelled gold toward a new record, this time around we’re seeing strength in the dollar, which is weighing on gold,” Traynor said.

The ICE dollar index
DXY, -0.30%
edged up to 81.264, gaining from 81.039 late Thursday. A stronger dollar tends to discourage buying as it makes dollar-denominated commodities more expensive to holders of other currencies.

Silver led the percentage losses among a broad decline for other metals futures Friday. Silver for December delivery
US:SIZ2
fell 30 cents, or 0.9%, to $32.37 an ounce, down 0.7% for the week.

Investment demand is expected to be the prime driver of silver prices this year, according to Thomson Reuters GFMS’s Interim Silver Market Review released Friday.

The report said that silver used in industrial applications will fall by 6% this year because of sluggish economic activity in the industrialized world, but investment demand for silver has recovered since mid-August.

Economic woes

For now, gold and silver both were “weighed down by fears about global growth following the release of several disappointing economic pointers this week,” said Fawad Razaqzada, technical analyst at GFT Markets, in a note.

U.S. economic data has been “a bit dour” recently, indicating that the Federal Reserve may decide to ramp up its quantitative easing program, said Brien Lundin, editor at Gold Newsletter. “This should help gold if/when the [QE] trend continues.”

Meanwhile, recent prospects for escalating hostilities in the Middle East aren’t delivering a boost for gold, said Traynor — “evidence that gold does not automatically jump higher on geopolitical tensions. Indeed, we’ve seen inflows into the dollar over the last two days, which gives gold that much more work to do to move higher.”

And don’t forget Europe, he said. “American leaders are jawboning about how to avoid a future debt crisis; Europe’s crisis has already arrived,” said Traynor. “This puts further pressure on the euro ... which further enhances the appeal of the dollar, and adds to the headwinds gold is facing right now.

HSBC metal strategists said that gold didn’t respond to central-bank cues on Thursday, failing to rally on rising expectations for more monetary easing in Japan, a turn of events that they said left short-term investors “disappointed.”

Still, they are hopeful that demand will pick up shortly. “We anticipate demand to remain resilient in the fourth quarter, in part due to the emerging markets, most notably in India and China,” the HSBC strategists said.

Also Friday, copper for December delivery
US:HGZ2
closed 1 cent lower, or 0.3%, at $3.45 per pound, down 0.4% for the week.

December palladium
US:PAZ2
fell $4.75, or 0.8%, to $626.45 an ounce, but climbed 2.5% for the week after Johnson Matthey on Tuesday predicted a 2012 supply deficit for the metal.

January platinum
US:PLF3
dropped $11.50, or 0.7%, to $1,561.80 an ounce, up nearly 0.2% for the week.

Platinum prices fell on Thursday after Anglo American Platinum Ltd., the world’s largest platinum producer, said striking employees in South Africa had returned to work.

The HSBC strategists said that they also expect platinum prices to find support in the medium term, however.

“Issues with mining profitability, such as lower platinum-group metal prices and higher labor costs, have led to producers contemplating closing uneconomical mines,” they pointed out.

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